Aquarius Ales: How Much Should the Brew Cost? Susan White, University of Maryland Pascal Villiger “ at could be a better life than owning one’s own pub?” thought Marc \ \ ] Johnston and John Sheridan, two recent University of Texas Austin gradu: ates. “Drinks available at any time, great drinking companions, and a way «o stay connected (o the vibrant University of Texas community which frequented the pub.” Aquarius Ales’ was a popular pub on Sixth Street, a hangout of many university students, state employees on their way home, professionals, convention atcendees and those looking for a place to socialize on the weekends. ‘The pubs current owners, Ted and Sharon Green, were ready to sell their business and retire, ieaving the long hours, management, and regulation problems to someone younger. They were considering an offer from Mare and John for $450,000. The pair of would-be entrepreneurs thought this was a fair valuation, even though the Greens’ original, informal asking price was $700,000. ‘The Greens thought the graduates offer seemed far t00 low to even consid cr, bur they had received no other offers and had been looking to sell for the past year. “They wanted to be sure they would receive a fale price for their establishment. They had visions of golfing and quile-making that were hiard to accomplish as small business own: cers with little time to do everything that needed to be done. ‘THE Business At the time, Aquarius Ales was taking advantage of a wave of nostalgia affecting young and old patrons. The pub primarily played sixties music, although the owners found their patrons to be equally nostalgic about seventies music. The pub moved with the times in order to accommodate changing tastes. There were live music performances wo or three times a week: The pub provided several televisions, including one big screen, to entertain its customers. The televisions were generally tuned to a variety of sports events, including professional and college football, basketball, baseball, soccer and hockey. The Greens occasionally paid for special one-time televised sports events as well, which attracted unusually large crowds, including families, on those nights The bar also had several coin-operated billiards tables and pinball machines, darts, and a Copyrighe © 2008 by the Case Reiearch Journal and by Susan White and Pascal Villiger. ‘The authors thank participants in the Finance Roundtable at the North American Case Research Association Conference, the journal editors and anonymous reviewers for theie valuable suggestions con ‘cerning the case. The case is designed to provide material for class discussion and is not intended to ilus trate either effective or ineffective handling of a management decision, ‘Aquarius Ales: How Much Should the Brew Cost? 1shuffleboard table. ‘The pool tables were maintained by an outside vender, with Aquarius splitting the profits fifty-fifty with the vendor. OUTLOOK FOR THE MARKET Alcohol sales had been declining for a number of reasons, First; alcohol consumption was decreasing in the general population as a result of a health-conscious movement. Organizations such as MADD (Mothers Against Drunk Driving) actively sought to increase public awareness about drinking, thus intensifying its negative image. In addi- tion, as the general population grew older, fewer people went out for entertainment. Bars used to be the primary providers of special pay-per-view sports events. With the spread of cable television, more consumers had access to these events in theit own liv- ing rooms. “The market for aleohol, however, was still’ multi-million dollar business. The Texas Alcohol Business Review, published by the Texas Restaurant Association, estimated 2004 alcohol receipts to be $109.4 million. This was an increase of 1 percent over 2003 revenues of $108.3 million. These figures did nor reflect total sales, because the report only reflected sales of establishments that were members of the Texas Restaurant Association.’ ‘According to the National Restatirant Association, most cating and drinking places ‘were single unit, independent operations. A third of cating and drinking places were sole proprietorships or partnerships. ‘THE Pus’s SPECIALTY ‘The primary customers of Aquarius Ales were students and professionals aged twenty- five who enjoyed drinking and socializing. ‘The pub made heavy use of pro- motions, including “happy hours” and “pine night,” when drinks were served at reduced prices. Aquarius Ales was particularly known for its “sunshine brew,” a drink that “let the sunshine in,” from the hic sixties musical Hair. Drinks were also discounted during special sports events, One weekday night was devoted to a dart or billiards competition, With informal “leagues” competing for trophies. In addition to alcoholic beverages, Aquatius also had a limited food menu, including grilled chicken fingers and chicken uggets. Information about Aquarius Ales’ major competitors is listed in Exhibit 8. Aquarius was the smallest of the bars in the immediate area in terms of sales. There ‘were no recent transactions in the immediate area to use as comps to determine a sell ing price for the bat. one to for Pus EMPLOYEES Hours of operation were 3 BM. to 2 A.M. weekdays and Saturdays, and noon to 11 PM, on Sundays. The early opening on Sunday was due to the abundance of sports events on Sundays, with big events attracting big crowds. The pub employed two managers, who were generally responsible for the day-to-day operations and split their time at the bar. ‘The pub also employed two bartenders and two cocktail waitresses, The Greens oversaw purchasing, financial, and regulatory matters which consumed approximately fifteen to twenty hours weekly: Each week, the managers met with the Greens for several hours to Case Research Journal * Volume 28 * Issue 1 + Winter 2008discuss problems, concerns, etc. The managers’ salaries were based on a fixed monthly component plus a bonus based on a percentage of net profits. The managers each had a base salary of $30,000 yearly and received an additional 3 percent of net profits. The Green's did not pay themselves a salary; however, they did receive any profit generated from their unincorporated business. WHAT PRICE? ‘Ted and Sharon Green were not born entrepreneurs. Sharon spent most of her career at home, raising the Greens’ four children and attending innumerable PTA meetings. Ted was a long-time manager at IBM, working first in Poughkeepsie, New York, before transferring to IBM’s Austin location, When he was fifty-three, he saw the writing on the wall—IBM, which used to have a full employment policy, started downsizing, encouraging older employees to take attractive buyout packages. Ted's buyout amount was enough for a down payment on the pub, and with their children grown, Ted and Sharon devoted themselves to learning their new business. None of their children were interested in continuing with the business, and Ted and Sharon were ready to move to a retirement condo in Florida. One of their son's friends, John Sheridan, had recently graduated from the University of Texas with an MBA degree. John frequented Aquarius Ales during his stu- dent days, and when he found out that the Greens were thinking of retiring, he con- tacted a former fraternity brother, Marc Johnston, who was working at a small M&A. boutique in Dallas, to help him determine what price to offer for the pub. “They asked the Greens for information about their past sales, and spent consider- able time researching information about growth potential and competition in the area. They found that drinks were generally priced as a commodity; most bars charged about the same prices for the drinks they served, an average of $4.50 per drink. Even though overall alcohol sales were declining, the Greens believed that their pub’: sales would increase. The pub was in an especially desirable location, in their opinion, and the recent closure of several nearby bars due to tezoning and construction expected to contribute to increased sales. The Greens anticipated sales of $200,000 for the upcoming year, a slight decline of about 3 percent, followed by growth of 15 percent the following year, 10 percent the year afier that, 5 percent for the next five years, and 3 percent after that. ‘The forecast of declining sales for the upcoming year reflected anticipated roadway con- struction projects proposed for their arca. They believed the pub would see a temporary decrease in patronage, but that it would rebound quickly, eventually reaching a stea 3 percent growth rate in a few years. Mare arid John believed thar the interest expense on Aquarius’ recent balance sheets represented the typical cost of debt for this business and hat their business expense, if they operated the pub, would be similar. The assets of the business included all of the fixtures, game machines, and built-in furniture, and the existing lease had ten years ig. The liquor license could be assigned to a new buyer, assuming the buyer applied to and was approved by the ‘Texas Alcoholic Beverage Commission. A typical market-to-book ratio for firms in this industry was ewo to four times, and a typical price/earnings ratio was ewenty to cwenty-five, John felt an equity purchase was more artractive than an asset purchase as it enabled the business to maintain its attractive lease rate for the next ten years, remai ‘Aquarius Ales: How Much Should the Brew Cost? 3‘After consulting with Marc, John offered $450,000 to purchase the Green's equity in the pub although he knew this was considerably lower than their informal asking price. In order to show the Greens the basis for their valuation, Marc, with John’s assis- tance, prepared a detailed plan showing the justification for their price and seasons why the $700,000 the Greens were asking was too high. Marc and John developed a dis- counted cash flow analysis, along with comparable companies and precedent transac- tions analyses to determine a fair price for Aquarius. John assumed he and Mare would finance the pub with the same mix of debt and equity that the Greens employed at the time. Given Mare’s experience as an investment banker, the two were careful to incor- porate a private company discount as part of the analysis to appropriately reflect the illiquidity and high risk of Aquarius’ returns. “The Greens were disappointed with the initial offer and were keen to review Mare and John’s analyses. The Greens explained to the pair why they felt thac their asking price was justified. They had purchased the bay's asters ten years ago for $175,000. They believed that a 15 percent return on their aisets was very reasonable, and if anything, on the low side, Stocks made considerably above their historical average of 7-10 percent in this time period. They believed their business was riskier than investing in the stock market, and, therefore, should receive higher return, In addition, an investment in the stock market would have been a passive investment, like their other personal stock investments. The pub was, if not their child, at very least a treasured niece or nephew— one they were concerned about, worried about, and wanted to do well. Information from the Green's past financial statements is contained in Exhibit I and Exhibit 2. The ens explained that Other Assets seemed to be a high percentage of Total Assets, but this is where they placed the value of their liquor license and prepaid expenses, which their accountant said should not be classified as plant, property and equipment. They had noticed a gradual increase in prepaid expenses over time and thought that other assets would grow at roughly the same rate that sales were growing. Mare and John wanted to use publicly traded comparables in order to show the Greens what the pub would be worth under these circumstances, even though it was not reasonable co compare a large publicly traded company like Applebee's or Cheesecake Factory to a small pub like Aquarius. Using information from their posi- tions in investment banking firms, they compiled information on comparable compa- nies in Exhibit 3, Exhibit 4, Exhibit 5, and Exhibit 6. Exhibit 7 contains information about size premiums often used when using larger comparables to value a smaller busi- ness, They believed that this information could be used to find a reasonable range of valuation numbers for Aquarius Ales. Armed with their valuations, they hoped to con- vvince the Greens that their asking price was too high. They thought the Green's asking price was based on a desire for an arbitrary profit while their valuation would be based on financial valuation theory, Mare and John also knew that the Greens had not rein- vested all of the net income from the bar—that some monies had been taken out for the Greens’ personal use over the years. They planned on financing the pub in roughly the same proportions of debt to book equity as the Greens had done in 2006, and also expected that they would take out income or add equity and debt as necessary to keep the debt ratio reasonably consistent. “The Greens told Marc and John that they were willing to consider the proposed val- uations. The Greens remembered what a difficult time their neighbors had in selling their home because the initial asking price was too high. While the Greens didn't have to sell right now, they were ready to give up the business and move on to the next phase Case Research Journal * Volume 28 * Issue 1 + Winter 2008in their lives. Marc and John had similar thoughts. They were looking for a small busi- ness opportunity in Austin, the city where they had had an enjoyable university experi- ence. Both the potential buyers and the sellers wanted to take advantage of what they thought would be a good business opportunity, but only at the right price. Mare and John wanted to gather their thoughts and their numerical ammunition for their upcom- ing meeting with the Greens. They wanted to value the pub, using finance and theif personal valuation experience, and decide what price to offer and how high they would go in the negotiations. Nores 1, Names and numbers have been changed to protect confidentiality 2. The pub had a capacity, according to the fire marshal, of seventy-five, The average number of patrons was twenty-five at any given time, with an average over.a twen- ty-four-hour period of sixty patrons. The number of patrons peaked when the pub showed the 2002 World Cup soccer finals, when the bar was close to capacity for the ewo hour period when the final game was shown. 3. The Texas Restaurant Association web site is hetp://wwww.restaurantville.com, and contains statistics about the growth in the food service industry in Texas. Aquarius Ales: How Much Should the Brew Cost?Exhibit 1 Aquarius Ales Balance Sheet Year Ending 2004 2005 Assets cash $11,642 8 13597 ‘Accounts Receivable 2,008 2.483 Inventory 7407 8,090 Other Current Assots 471 471 Total Current Assets 22,226 25,281 lant, Property and Equipment 22,546 40,050 Depreciation 3444 4,005 Net PP&E 29,102 36,045 Other Assets _18,347 18,583 Total Assets Ss ea.874 $79,908 Liabilities Notes Payable $s 8473 Accounts Payable 5,098 Reserved for Owners! Taxes 2,087 Other Current Liabiltios >. Total Current Liabilities 20,321 Long-Term Debt Total Liabiltios 35,993 ‘Owners’ Equity 33,681 Total Liabiltios/Owners’ Equity $69,674 $79,908 it2 Aquarius Ales Income Statement Year Ending 2004 2005 |sstes 5145.02 $172,468 Gost of Goods Sold 50,758 62,564 Vending Revenues 800 900 Gross P 595,064 Si70,806 'Seling, General, and Administrative Expense $6,725, 67,452 Depreciation Expense 700 750 [Eamings before Interest and Taxes 37.640 42,602 Interest Expense 2,220 1,874 Proft before Taxes 35,420 40,728 Taxes" (30 percent) 10,626 12.218 Net Income $24,794 $28,509 The taxes represent the Green's personal taxes on their unincorporated business, including a2 $ 16458 2822 9,193 1171 29.642 45511 4551 40,960 2117 91,718 2006 $205,668 69,765 75. $186,677 78,024 300. 57,853 2,701 self-employment taxes. The tax situation would be different for each potential owner, ddopending on his or her personal tax citcumstances. Marc and John thought that 30 percent was reasonable, considering that they also would be active owner/managers and would have tax rates similar to the Greens. Like the Greens, Mare and John planned on setting aside funds to pay their personal taxes on the pub income. Case Research Journal + Volume 28 * Issue 1 * Winter 2008Exhibit 3 Analysis of Publicly Traded Comparable Companies Applebee's International. Applebee's has 1,670 locations in the U.S. and twelve countries. ‘Applebee's is the single largast casual dining chain. Most are freestanding units, although some are located in malls. The firm owns 25 percent ofits restaurants; the rest are franchised BJ's Restaurants, Inc. Bv's operates restaurants under the Bu's Restaurant & Brewery brand name, ‘which includes a brewery within the restaurant and 8\'s Pizza & Gril, which is a smaller format, full service restaurant, By's Restaurants operated 57 restaurants in Califomia, Oregon, Colorado, Arizona, “Texas, Ohio, and Nevada. Brinker International. Brinker International owns and operates over 975 locations of Chil's Grill and Bar. Brinker is the second largest casual-dining operator, behind Darden. Brinker is second only to Applebee's as the largest fullservice chain. Brinker also operates the Itallan-themed Romano's Macaroni Grill and On the Border Mexican Gril and Cantina, along with Maggiano's Lite lay, Rockfish Seafood Grill and Comer Bakery Café Buffalo Wild Wings, nc. Buffalo Wild Wings advertises, “Wings, beer, and sports—al! the essen tials’. It owns more than 300 Buffalo Wild Wings Grill and Bar restaurants in thirty-one states. About 27 percent ofthe fim is held by Chairman Kenneth Dahiberg and family. California Pizza Kitchen. California Pizza Kitchen operates, licenses or franchises 17S restaurants, ‘mostly in mall or shopping center locations, offering pizza with a variety of unique toppings. The com- any also markets a line of frozen pizza through Kraft Foods. ‘The Cheesecake Factory, Inc. The Cheesecake Factory runs 90 casual dining restaurants, featuring {otty varieties of cheesecake. The restaurants are known for their aumosphere—opulence and Las \Vegas-siyle glitz. The firm also runs five Grand Lux Cafes and salls its cheesecakes to grocary stores and food service operations. The company is 15 percent-owned by FMR Corp. Darden Restaurants. Darden has more than 1,300 casual dining restaurants, including Olive Garden, Red Lobster, Bahama Breeze, and Smokey Bones BBQ, Reed Lobster is the number one seafood chain, with about 850 stores. Landry's Restaurants. Landry’s Restaurants are the number two seafood chain, with over 300 restaurants specializing in seafood and steaks. its chains include Joe's Crab Shack, Chart House, Saltgrass Steakhouse, Rainforest Café, Chariey’s Crab and Landry's Seafood House. The company also owns aquariums and hotels. Chaan and CEO Tilman Fertita owns more than 21 percent of the company. MeCormick & Schmick's Seafood Restaurants, Inc. McCormick & Schmick own 52 upscale casual dining seafood restaurants in twenty-two states. ts chains include M&S Gril, McCormick's Fish House & Bar and Spenger's Fresh Fish Grotto, Outback Steakhouse. Outback is the number three casual dining operator, behind Darden and Brinker, with 1,200 locations in the U.S. and twenty other counties. It owns 880 Outback Steakhouses, 170 Carrabtals italian Gri restaurants, along with Bonefish Gril, Cheeseburger in Paradise, Fleming's Prine Steakhouse, Lee Roy Selmon's, Paul Lee's Chinese Kitchen and Roy's. PF. Chang's China Bistro, Ine. PF. Chang's China Bistro has 100 restaurants in thy states, with {ood items from five regions in China. The company also owns 50 limited-service Pei Wel Asian Diners in southwestorn U.S. Aquarius Ales: How Much Should the Brew Cost?(Sin millions, except per share data) Exhibit 4 Comparable Company Analysis NTM = next 12 months TIM = last 12 months |Comorate tax rate for publicly traded companies is assumed to be 40 percent. @ &) @xib) @ © Stock Price Stock Stock PriceS2 Shares. Market =Total Company Name Ticker Price High __WeekLow Out. __—Cap_——Debt__—_—Cash ‘Applebee's International Ine APPB $2605 $2732 $1729 +743 «448469 ~—« 1752 22.6 BY's Restaurants inc BRI 2115278017648 B12 - 847 Brinker Intemational Inc. EAT 3267 95.74 20981223 «3.9859 ©4806 666 Butfalo Wild Wings Inc BWLD 60.19 6045 30.88 87 5246 - 646 [California Pizza Kitchen Inc. PKI 3219 9660-2505 19.4. 288 - 82 [Cheesecake Factory Inc. CAKE 27383775 NSS 7B 143.1 3841014, Darden Restaurants Inc. DRI 4122 4443-8291 1452 5984.7 ©7636 538 Landry's Restaurants inc. LNY 3033 «96.30 6.11 28066808622 232 MeCormick & Schmick's Inc. MSSR 2764 2824 16581484003 03 106 }OSi Restaurant Partners, Inc. OSI 3961 4421-2730 754 2.9882 ©2700 978 PF Chang's China Bistro Inc. PFCB 42.26 4958 2808255 1,075 909 318 Median 1,075 Average 1,891.3 @ * 0 0 CO) um EPS = NTM um um um Net (Incl. Extra. EPS dend ‘Company Name Revenue EBITDA EBIT Income items) _—Est._—_ share ‘Applebee's International Inc 1.3379 2204 164.0 80.9 1.08 1.47 0.22, BY's Restaurants inc 298.9 246 146 98 oe 050 - Brinker Intemational Ine. 42768 578238532296, 1.83 1.84 0.36 Butfalo Wild Wings Inc. 2782 402 57 163 1.90 NA California Pizza Kitchen Inc. 5545 66.1 366 210 1.08 131 [Cheesecake Factory Inc 19153 «17751284 a1 1.04 1.18 Darden Restaurants inc. 58903 7861 55988489 241 263 0.46 Landry's Restaurants Inc. 14741 21.6 1368 es) (4s) 147 0.20 MeCormick & Schmick's Inc. 308.3 ait 204 133 034 1.13 - (081 Restaurant Partners; Ine. 3941.0 9303-1787 = 1002 1.95 1.73 ose PF Chang's China Bistro Inc 9976 114685 333 1.28 1.48 = Median 19153 17751284 33.3, Average 1,869.0 235.1 155.7 844 ‘Aquarius Ales 8 Case Research Journal * Volume 28 * Issue 1 * Winter 2008Exhibit (continued) (Ha) fay =) OO) w=) (tye) Ma) Ent. EVLTM — EVALTM LT Growth Dividend 5-Year Value Revenue EBITDA _P/ELTM _P/ENTM _Rate(%) _P/BV__Yield(%) Beta 1,999.5 18x am 27x SKB 38x 0.89 0.653 468.5 20x 18.0x NM NM 318 2% - 0.836 44189 1.0x 7& 178 17BK140 3% 140 0.505 460.0 1x Mae 817 NA 243 45« = 0.842 6153 tax 93 288 ASK 173 30x 0.038 2,081.4 16x 11K = 8.Sx BS 18B 30x - 0.500 6,694.5 tax 85x PAK 187K 2A 49x 42 0.487 1,507.0 1.0% 71K NM 206x 98 41.9% 0.66 0.704 390.1 1x 125k 28.5x ASK OA 25K - 4.774 3.1605 08x 96x 2.9K ax 187 24x 131 4.136 4,136.8 12x 102k 3.x 282K 0B 3% - 0.680 1,507.0 12x 96x 293x173 3.0x - 0.680 2,084.6 13x 105x —26.ax 22m 1B 32x 0.46 0.740 0 um LTM ——LTMNet_ Total Total Deby. Total Book EBITDA EBITMargin income Deb/Total Total Retumon Return on. Assets Value Margin (%) (4) Margin (%2)_Capital (%) Equity (%) Assets (%) Equity (%) 9955 486.7 174 123 60 265 360 13 180 2498 2029 103 ea 4A - - 44 59 2.9945 1,087.4 135 90 54 310 450 105 215 16121162 145 92 58 - = 109 183 3105 2088 18 66 38 - = 78 10.4 103977115 135 9s 62 82 55 79 120 3.1693 1.2838 133 98 59 2 619 13 28.4 1.6482 503.8 144 93 (6) 634 aT 53 93 2284 1602 104 66 43 02 o2 59 88 2.2586 © 1,2242 84 48 28 77 aA 52 88 51402838 18 7 38 220 0 814 84 14 998.5 486.7 13.3 90 43 77 aA 79 14 41672 8656 126 82 43 185 338 a4 138 285 188 6 712A 873 Aquarius Ales: How Much Should the Brew Cost? 9xs xoez x60 szt verpont xo xz xo sez esis aBuiany xe eu x16 x0 602 zove siueineisoy eo;v9g |In4_-9UI sidsouog weinersoy apIMPHOM. sO/Rez¥O) x92 xe xeL x01 reat cout siueinesso4y 201N0g [In nop wuesnesoy puNoH ® X04 SOIZL/eL. x02 x98 xe x01 sz ze stueineisoy ooyu9g In _-2U| SWINEISOL UL NU SIB-D9UD —90/DL/20 eu woz x x¥0 ey 98 sweinersay soneg pouring ruemnersey uoIsog 90/21/60 x2 roe x68 x0 ze ss ‘squeineysou 20195 [Is ‘UI SBUPIOH DIS 90/61/80 we eu xe x90 con sort ‘sueinersoy eoyveg Ins “24 dhol weineiseul sng EN 9OI6L/SO xt ree x6 xy even 098 ‘suzineysoey 20196 In ‘uy dnoip jueineisoy 8 UeKY 90rh2/Z0 eu eu Lb xz ose 99 ‘sueineysoy oayu0g In UI SWUEINEISOY XOWK ER 90/L1/80) wt ov x92 xe0 oes esos sueineisey 2om9g 14 “OUI VOOIES BBNOYBAIS JIG 907 gorBI/BO eu eu eu x90 eae az Sweine}sol 2g Pay] SYN INH BZAId GE “OU| MH BZZIg GOISz/BO we x97 xe x91 osav es9 ‘sueaneysoy 9000S tn ‘ou ‘esnoupeod s.ue607 90/08/01 x2 wee wor x60 soe kere ‘sueinersoy 201495 In ‘ul ‘slowed lueIneIseY ISO 9O/SO/LL x9 xver ef ae our Veco squesnesoy 2onsos PONT ‘uj oueas g0rzz eu eu xo xe sez oor ‘ou doi ayse weUde!3 go/LoreL x61 eu xe x0 see 06 AysuoHloN ® MWS ouL LO;Be/eO Smren Noe SUOSUTION — VaLIaS eu Tausy Tams Teme auTSBeID MSAPUT TenssiiebieL e160 PenieA WT OMIA anten penien ‘enrea enren, Ainbg—Aynb3asudieiug—esudiewwg Ang esydiovug perdu, = panda = panidwy—peniduay—paniduay = paniduy, Suonoesuel] WEpsodid —_§ waIUXa Case Research Journal + Volume 28 * Issue 1 + Winter 2008 10Exhibit 6 Comparable Transaction Data, Texas Bars and Restaurants ‘TRANSACTIONS FOR SIC CoDE 5813, BARS AND RESTAURANTS, STATE OF TEXAS Statistic Count Range Mean Median _| Sale date 8 998-2004 Net Sales 8 $185,899-1,191,428 $443,267 $359,807 Market Value of Invested Capital 8 $60,000 405,000 $180,925 $142,500 Bir 8 $(25,187}- 76.987 $ 26,716 $21,944 Net Income 8 $(25,187)- 76.968 $21,872 $ 21,944 Equity Price/Net Sales, 8 0.180- 0.707 0416 0.399 Equity Price/Gross Cash Flow 5 4.483 15.293 7728 64a Equity Price/Book Value of Equity 3 oat2- 7.273 aa64 3.508 Equity Price/Net Income 5 2.073- 10.955 6.872 7472 MVICINet Sales 8 0.180- 0.898 0.440, 0.399 MvICIGross Profit 8 oat 1.111 oes ‘ses MVICIBook Value of Invested Capital 3 o.60- 6.881 3.606 3.508 ‘TRANSACTIONS mic MvIci Gross. Equlty/ No. Business Description MVIC_SaleDate __NetSales__Sales_—Profit__Sales 1 Sports bar with dance floor $150,000 3104 $ 247945 0605 «1.020 0.605, 2 Club $85,000 202 $ 185839 ©0487 1.11057 3 Sports bar $ 60,000 9104 $992,688 © 0.180 0834180 4 Nightolub with food $105,000, 403 423024 «=o. sdo a8 5 Nightelub $195,000 6/99 $ 290990 0.465 063s 8s 6 RestauranvSports bar $347,400, ftlo2 $986,925 08980898 O.707 7 RestauranvBar $405,000 zoo $1,191,428 03400473840. 8 RestauranvBar $160,000 1098 = $ 487,958 ©0328 04950928 ‘ildata is takon from Praits Stas, Aquarius Ales: How Much Should the Brew Cost? 1Exhibit 7 Ibbotson Associates Risk Premiums over Time, 2006 ‘Size Premium Market Capitalization Market Capitalization Size Premium of Smallest Company of Largest Company (Return in Excess {in thousands) (in thousands) ‘of CAPM) Mid Cap $1,729,364 3 7,187,244 1.02% Low Cap 597,243 1,728,888 181 Micro Cap 1,078 586,393 395 Breakdown of Declles Largest $16,081,015 $.967,495,144 087% 2 7,189,887 16,016,450 067 a 3,968,998, 7,187,244 0.85 4 2,525,472 3,961,425 4.10 5 1,729,364 2519,280 1.49 6 4,282,276 1,280,966 173 7 872,443, 1,280,968 1.87 8 587,243, 872;103 233 9 265,056 276 10—Smallest 1078 636 Breakdown of the Tenth Decile 10a $169,245 $ 264,981 4.39% 106—Smallest 1,078 19,195 9.83 Fisk treo rate: 4.6% Market risk premium: 7.1% it 8 _ Competitor Information” Bar Sales and Market Share Market Share (Austin Establishment Sales and surrounding area) Elephant Bar $588,625 39% [Cedar Door 620,445, 37% Dog & Duek 387,540 22% ‘Grown & Anchor 286,796 19% Lavaca Street Bar 515,684 38% leks 954,562 81% "From Texas Restaurant Association. Note that Aquarius Ales’ market shre was not listed separately in the TRA statistic. 12 Case Research Journal * Volume 28 * Issue 1 * Winter 2008